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Friday, 13 July 2018

Wrongdoing by the assessee has to be established


Delhi High Court: A Division Bench comprising of Ravindra Bhat and A.K. Chawla, JJ. dismissed Revenue’s appeal holding that Income Tax Appellate Tribunal (ITAT) was right in holding that the assessee was not liable to penalty under Section 271(1)(c) of Income Tax Act, 1961.

The assessee, manufacturers of TV parts, purchased some machinery for Rs 3.34 crores, which they were not able to remove from the port due to inability to mobilize funds. The assessee decided to write off the machinery into account books, which was disclosed in Annual Accounts. Subsequently, while filing the IT return, the above-mentioned amount was claimed as revenue loss. The revenue Authorities held that the writing off of the said amount was not justified. The penalty was levied on the assessee under Section 271(1)(c) for making the wrong claim in the return. On appeal, ITAT held that no penalty could be levied on assessee in the present case. Revenue appealed against the order of ITAT.

The High Court perused the section and observed that a plain reading of the provision shows that penalty is levied only on an assessee who either ‘conceals’ or ‘furnishes inaccurate particulars of his income’, these are the two essentials. Supreme Court decision in T. Ashok Pai v. CIT, (2007) 7 SCC 162, was relied upon wherein it was held that penalty under the section is not automatic in nature; the conditions under the section must exist before the penalty is imposed; Revenue had the responsibility of showing intentional wrongdoing. It was observed that though the petitioner made a wrong claim, the Parliament had no intention to penalise everyone who makes a wrong claim of deduction. The Court held that the essentials of Section 271(1)(c) were not satisfied. Hence, the decision of ITAT was upheld and the appeal was dismissed. [PR CIT-8 v. Samtel India Ltd., ITA No. 43 of 2017, dated 09-07-2018]